Retirees feel the bite of parasitical kids

Freeloading: Financial advisers say older parents need to set boundaries when their adult children show up with their hands out.

Your Money

April 18, 2004|By Joanne Cleaver

"It never occurred to me that something like this might happen. I felt secure," said a 78-year-old widow who lives on the East Coast. She doesn't want her name used because she's embarrassed -- for herself and for her sons.

The sons are both in their 40s. One is married, with a child, and a hard worker. The other has a spotty employment history and a regular alcohol habit, and is struggling with permanent physical damage after being shot during a mugging.

The second son has never hesitated to ask his mother for financial handouts to tide him over, but in the past year, she has been paying all his household bills, from rent to groceries. Doing so is eating into her life savings. Meanwhile, the other son openly resents the pool of entitlement that his brother appears happy to wallow in, eroding any potential inheritance along the way.

The tension is wearisome.

"It puts financial and relational stress on me, there's no denying that," the widow says.

Financial advisers estimate that about 5 percent of retired people are chronically pressured for money by their adult children. Unaccustomed to saying no, the elders often cave in. When they do, they often undermine their own financial stability by giving away the money that they are counting on for the rest of their lives.

"Many parents got in the habit of bailing out their children while they were working and don't know how to just say `no' now that they're retired," says Les Abromovitz, author of Protecting and Rebuilding Your Retirement. "I've run into a number of retirees who are depleting their nest eggs because they keep forking over money to adult children. It's rarely a one-shot deal."

He has encountered retirees who have sold dividend-producing stock to free up cash for their freeloading offspring. One couple co-signed for their child's mortgage and then couldn't buy their own Florida retirement home. The combination of their reduced income and the outstanding debt disqualified them.

One common line that adult children use to extract "gifts" from Mom and Dad is this: "It's our inheritance. Why not give it to us now, rather than later?"

There's only one way to stop chronic gift-grifters: in their tracks.

"You have to address it. You can't avoid it," says Donald W. Nicholson, a financial adviser in Wilmington, Del.

Saying no -- and sticking to it -- is hard. Financial advisers often set up a meeting with the adult children and run it so the parents aren't again run over by their kids. Nicholson sometimes brings in a psychologist to coach the retirees in ways of communicating love and support to their kids in nonmonetary terms.

Parents need to arm themselves with plenty of specific financial information. Adding up the value of all recently given gifts equips parents with hard numbers to combat claims that "it hasn't been that much."

Equally important is to set clear parameters for future giving. If gifts haven't counted as birthday or Christmas gifts, this is the time to start. Informing adult children that from now on any financial gift will be deducted from their portion of the inheritance is another way to trim. That strategy also quells worries that a greedy sibling is grabbing more than his rightful claim.

Bill LaVanne, an investment adviser with Financial Network Investment Corp. of Lake Zurich, Ill., recommends a family meeting in which the parents explain their estate plans, who gets what and why they think that's equitable, as well as their current financial condition and their concern that they might outlive their wealth.

Joanne Cleaver is a business writer based in the Midwest.

Gifts for the kids, tax breaks for you

There are ways for parents to reap tax benefits by giving money or assets to their adult children.

The simplest method is to give up to $11,000 per year per person, the current "annual gift exclusion." There are no tax penalties for donors who give that amount to any individual, related or not, says Susan Calomino, a senior partner with Chicago-based Lincoln Financial Advisors, an insurance and financial-services company.

But what if you want to give more in a single year and still avoid a gift tax?

Parents who want to help a child with a house down payment, for instance, can structure a loan and then forgive $11,000 of it each year until the loan is paid off.

That uses up the recipient's annual gift exclusion amount for each year in which loan amount is forgiven.

(It's critical to have the proper paperwork drawn up so that the parents and the child are clear on the loan-forgiveness schedule.)

-- Joanne Cleaver

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